IDFC Bank to merge with Capital First; V Vaidyanathan to be CEO of merged entity

The swap ratio indicated that for 10 equity shares Of Capital First, 139 Shares of IDFC Bank will be allotted.

IDFC Bank today announced its merger with non-banking financial company Capital First. The share swap ratio has been fixed at 139:10, which means 139 shares of IDFC Bank will be allotted for every 10 equity shares of Capital First.

V Vaidyanathan, currently Chairman and MD of Capital First, will succeed Rajiv Lall as MD and CEO of the combined entity upon completion of the merger and necessary regulatory approvals.

As part of the arrangement, Bipin Gemani, the CFO of IDFC Limited has resigned from the position and will now be the interim CFO of IDFC Bank.

In a press statement, the bank said this announcement is pursuant to IDFC Bank's stated strategy of ‘retailising’ its business to complete their transformation from a dedicated infrastructure financier to a well-diversified universal bank, and in line with Capital First’s stated intention and strategy to convert to a universal bank.

IDFC Bank's talks with Capital First gathered momentum after its bid to combine with the Shriram Group failed just four months after it attempted a complex share-swap deal announced in July last year.

So far, IDFC Bank’s loan book is skewed toward infrastructure lending, which contributes 47.5 percent of its total loans as of September 30 data. This is the loan book that the bank inherited from its parent IDFC Ltd. when it received a banking licence from the Reserve Bank of India in 2014. It was one of only two entities (the other being Kolktata-based Bandhan Financial Services) to get a banking licence.

The banking arm of infrastructure financier IDFC, heaved off into a universal bank in October 2015, has been on the lookout to boost its retail arm since over a year now.

IDFC Bank had then said its strategy to expand its retail business remained on track and it will continue to look for acquisitions to achieve that goal.

Speculations of its merger with Capital First grew in the last two weeks but the bank refused to “comment on market speculation”.

Analysts suggest this merger should augur well for both IDFC Bank to get a good quality retail book while Capital First will inherit a highly well provisioned infrastructure portfolio.

According to a senior analyst, Vaidyanathan leading the bank will be helpful to the entity as he's an expert on growing the retail book given his experience from ICICI Bank and the current leadership at Capital First.

Capital First is 35.97 percent owned by private equity firm Warburg Pincus, 13.91 percent owned by GIC while Vaidyanathan, also the Founder and Executive Chairman, holds the third largest stake at 10.5 percent.

At a conference last year, Vaidyanathan evinced interest in Capital First becoming a bank.

The deal is subject to regulatory clearances including from Reserve Bank of India (RBI) and other authorities.

Capital First brings with it a retail lending franchise with a loan book of Rs 22,974 crore (September 2017), a live customer base of three million customers; and a distribution network in 228 locations.

Post the merger, the combined entity of IDFC Bank and Capital First will have an AUM of Rs 88,000 crore; PAT of Rs 1,268 crore (FY17). Further, there will be a combined distribution network comprising 194 branches (as per branch count of December 2017 of both entities), 353 dedicated BC outlets and over 9,100 micro ATM points, serving more than five million customers across the country.

Post the merger, Lall will step into the role of non-executive Chairman of IDFC Bank, subject to regulatory approvals, and guide the transition process. He will replace Veena Mankar who will remain on the Board.